Special Attention

Ariel Education Initiative and Aon Hewitt found more than two-thirds of workers who took a withdrawal from their pension plans in 2010 reported they needed the money for an unexpected emergency, debt or day-to-day living expenses. Black employees took hardship withdrawals more than any other ethnic group, at 8.8% in 2010, compared with 3.2% of Hispanics, 1.7% of whites and 1.2% of Asian workers.  

In addition, half of black and 40% of Hispanic employees carried a loan balance at the end of 2010, compared with just 22% of Asians and 26% of whites. The vast majority of workers who leave their employer with a loan outstanding—80% of blacks, 76% of Hispanics, 71% of whites and 67% of Asians—subsequently default on them.

Aside from loans and withdrawals, cashing out is one of the most significant issues putting retirement savings at risk—particularly for black and Hispanic employees. Two-thirds (63%) of blacks and 57% of Hispanics who left their employer in 2010 cashed out their balances. In comparison, 39% of white employees and one-third (34%) of Asian workers did the same.

Ariel and Aon Hewitt discovered a racial gap in defined contribution (DC) plan participation. Two-thirds of Hispanics and 68% of blacks contributed to a defined contribution plan in 2010, while 79% of whites and 80% of Asian workers did so. Even when adjusting for factors such as age, salary and tenure, black and Hispanic employees were significantly less likely to have established a defined contribution plan account.

In an effort to encourage all workers to participate, employers have increasingly adopted automatic enrollment features. More than two-thirds (67%) of employers in the study automatically enroll new hires, up from 58% in 2007. The study found the push toward auto-enrollment is making a difference. Across all racial and ethnic lines, participation in defined contribution plans dramatically increases when automatic enrollment is in force. 

When auto-enrolled, 82% of black employees participated in a defined contribution plan, compared with just 64% of those not subject to auto-enrollment. The situation is similar for Hispanic workers—83% participated in their employer’s defined contribution plan when auto-enrolled, compared with 59% that were not ­automatically enrolled.  

However, while automatic enrollment is effective at increasing participation rates, it may actually negatively affect contribution rates in all races and ethnicities. Black workers who are auto-enrolled contributed 4.3% of pay, on average, compared with 6.3% for those not automatically enrolled. Similarly, Hispanic employees contributed 4.4% of pay when automatically enrolled, versus 6.6% when they were not subject to auto-enrollment. 

White employees who were auto-enrolled—contributed 5.2% of pay, on average, to their defined contribution plans; those who were not contributed 8% of pay. The contribution rate for Asian employees was 7.3% of pay for the auto-enrolled, compared with 9.4% for those who self-enrolled in the plan.  

The Ariel/Aon Hewitt study “401(k) Plans in Living Color II” examined the defined contribution plans of 60 large U.S. organizations, representing 2.4 million employees.